Wednesday, March 20, 2024

“Are you better off than you were four years ago?”


 - by New Deal democrat

No economic news today, so let me take a look at the supposed killer recent GOP meme that they claim is completely unanswerable: “Are you better off today than you were four years ago?”

This is based primarily on consumer sentiment reading as well as polling that has consistently shown that most people think that the economy is poor, even though they rate their own situation as doing well. Dan Guild has a model comparing consumer sentiment with Presidential approval ratings. He concludes that Biden will lose re-election unless consumer sentiment as measured by the University of Michigan does not improve to the index level of 82.

As I’ve pointed out in the past, Presidential approval correlates quite well with the price of gas. Here’s the historical record updated through last month:

Except for those periods late in recessions and shortly thereafter, when the price of gas has typically declined sharply but the unemployment rate is very high, generally speaking, the lower the cost of gas, the higher the consumer sentiment. Interestingly, except for the early part of the 1990s, when gas prices were ridiculously low, the correlation holds better nominally than adjusted for income.

But perceptions aside, are most people in fact worse off than 4 years ago? Here are two ways of looking at that.

First, as I noted several months ago, Motio Research has produced very good monthly estimates of median household income, that track very well with the (unfortunately) annual measure, which is only reported in September of the next year (thus, for example, the most recent official report even now is for the year 2022). Here’s their update through February:

Note that they recommend (in the small print at the bottom) ignoring the results from March through October 2020, when response rates were very skewed. Leaving those out, only three months during Trump’s term were better than the current reading, and two of those, at 112.7, were equaled by January’s reading. Only February 2020 scored higher, at 112.9.

A second way of measuring is to compare real average and aggregate wages. Below I show average hourly wages (blue), average weekly wages (red), and aggregate payrolls divided by population (black), all deflated by the CPI, and normed to 100 as of February 2020:

Most of the surge in average hourly and weekly earnings in 2020 and early 2021 were compositional. That is, most of the workers laid off during the worst of the pandemic were low wage service workers, in places like restaurants, bars, and entertainment venues. When those workers were rehired during 2021 and 2022, the averages went down, with a very big assist from gas prices spiking to $5/gallon. Since then, both measures have exceeded their levels from just before the pandemic.

Aggregate payrolls, even divided by population, and so including everyone who is not working, and not even in the labor force, hit their pre-pandemic level late in 2021 and haven’t looked back. They are *not* affected by compositional issues. And they are currently 2.9% higher, even on this per capita basis, than they were just before the pandemic.

So the truthful answer for most people to “Are you better off than you were four years ago?” is by any reasonable measure, “Yes.”